The Corporate Law Group

Proxy Compensation Discussion Redux

The SEC has examined the new Compensation Discussion and Analysis section of the Proxy Statements for 350 public companies. The CD&A was new this year and, to its credit, the SEC is trying to figure out if the objectives were met and what might be changed to make it better. No rule changes are expected for 2008, but some might be offered in later years. The SEC thought that two principal themes emerged. First, the SEC thought that the Compensation Discussion and Analysis generally needed to be focused on how and why a company chose specific executive compensation decisions and policies. The SEC said that the focus should be on helping the reader understand the basis and the context for granting different types and amounts of executive compensation. Second, the SEC thought that the manner of presentation matters. In particular the SEC thought that using plain English and organizing tabular and graphical information in a way that helps the reader understand a company’s disclosure, were best. They added that techniques such as providing an executive summary, or creating tables or charts tailored to a company’s particular executive compensation program, can make the disclosure more useful and meaningful. None of its comments meant that the SEC thought more text was needed; rather it opined that a shorter, crisper, and clearer discussion would often be better. We’re sure that, as with anything, both good and bad practices will arise and both will likely become ubiquitous. The SEC will try to correct the bad practices. The Buzz believes that intelligent focus by boards on incenting for the right targets and avoiding perverse incentives is time well spent, and will certainly make any compensation plan more useful, not to mention writing a CD&A easier.
Paul Marotta

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